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Dollar drops after inflation data

USD - United States Dollar

The US dollar fell against its major peers after data showed consumer prices increases slowed in July.The US Dollar Index was down 0.8%, trading around 92.98 at the time of writing.

The Consumer Price Index went up 0.5% last month after increasing 0.9% in June. In the 12 months through July, the CPI advanced 5.4%. The drop in the month-to-month inflation rate was the largest in 15 months.

Last month saw the strongest US CPI figure in 13 years, which has been part of the reason the market speculates that interest rates in the US could be increased.

The Jackson Hole Symposium will take place at the end of August, where all the US Federal Reserve members will be meeting. Market expectation is that the meeting will discuss how the central bank could start tapering its bond-buying program, which could be positive for the US dollar. The Fed is also expected to bring forward when it will start increasing interest rates again.

Key Movers

It has been a very quiet week on the data front for the pound. It remained on the front foot versus the euro, predominantly driven by confidence in the UK economy and the ongoing successful vaccination program. Forecasts from economists have now pushed forward the likelihood of an interest rate rise from the Bank of England into 2022, which has also helped buoy the currency. GBPUSD was up 0.09%, trading at 1.3852 at the time of writing.

Economic sentiment declined in Germany for the third straight month, which did not help demand for the euro. German ZEW released on Tuesday posted a significant decline to 40.4, down from the previous 63.3, suggesting that confidence in the German economy remains weak. There are concerns about the impact of the COVID-19 Delta variant and whether further lockdowns may be required. EURUSD was up 0.11% today, trading around 1.7317 at the time of writing.

Commodity lead currencies outperformed yesterday, with the NZD, AUD and CAD topping the list of major currencies. The Canadian dollar in particular found support following a rebound in oil prices. All three currencies strengthened against the USD again today after the CPI data.

Expected Ranges

EUR/USD: 1.1708 - 1.1744 ▲

GBP/USD: 1.3808 - 1.3871 ▲

AUD/USD: 0.7325 - 0.7386 ▲

USD/CAD: 1.2495 - 1.2546 ▲